How to Get Your Budget Back on Track
The budget you set for your business is key for long-term success, on so many levels.
As you run your business, it can be easy to focus too much on the day-to-day issues and lose sight of what really matters: your long-term goals and objectives. At this point, it might feel as though your budget is losing sight of the way forward – so let’s focus on it today.
Let’s learn how to get your budget back on track, with a fundamental understanding of your budget works, the purposes it serves, and what you can do to refocus and reengage with data that can make a difference in your business.
Building Your Ideal Budget
Vital to your overall success, your business’ budget does far more than simply calculate how much money you have for certain activities – it sets the tone for your organization, and puts into motion your plan for the future.
By that same token, a budget is not meant to “penny-pinch.” It is a guide built to help you understand the spending decisions you are making, and where you may need to mitigate risk or make improvements to bolster your bottom line.
Overall, when your budget is on track it will help:
- Control the direction of your finances
- Guide your money to the correct commitments
- Result in confident financial decisions and directions
- Fund your future projects and growth
A budget is a planned outcome for the future, instructed by the plan that your business wants to accomplish overall. If your business is growing, it helps you break down and gameplan for the areas that are most pressing (production, sales, marketing, etc.)
The Key Factors of Any Budget
Your budget can get off track when you lose sight of how money flows in your organization, so let’s start by diving a bit deeper into how that works.
Your business’ budget will typically include two main components:
- A Revenue Plan
- A Costs Plan
From these two, subtracting the latter from the former, you will have your resulting profit. Typically, you’ll be able to find this information all in one handy sheet, planned at least one year (twelve months) in advance.
This is essential: the manager of any business must always compare the “estimate at completion” (otherwise known as EAC) with the plan. This is the actual result compared to the estimate budgeted to complete.
Ultimately, it can be a huge mistake if you merely compare actuals with the planned budget – you also need to understand the budget that it took to achieve completion to get an accurate read on how much time/money you spent to achieve your business’ desired result.
The ways in which your budget can get off track is if your revenue is lower than your budget, or your costs are higher than your budget. So, let’s focus on both of those to help come up with a solution to build your business.
How to Get Your Budget Back on Track: Change It!
If you feel like your budget is causing your business to lag behind the competition, then you should feel empowered to change it. If something isn’t working, you deserve to take the time to make it work.
Revisiting, reviewing, and revising your budget is a great exercise for the overall health of your business. If you wait until the end of the year, you may end up with a lack of direction that could spiral your business out of control.
Let’s discuss the two most typical scenarios that can lead a budget off track:
When Revenue is Lagging
It is always important to understand the inherent risks of your organization (and industry).
If there is room for improvement, you should plan for a comprehensive push on your sales and marketing efforts. One of the reasons why your revenue may not be hitting estimates is that not enough people know about you and your product/service.
Typically, though, this is a fairly limiting solution that relies on a lot of factors. This is the scariest part of your revenue lagging behind your budget, as it is so often not under the control of your business.
If Costs Remain High
Meeting your revenue targets can be a far more uncertain prospect, so when your costs are too high the answer is relatively simple in comparison.
In an event like this, you may instead need to focus on cutting existing costs and deferring planned cost increases. While this may be difficult decisions for you to make, they do remain fully under your control.
Strategize Your Budget Effectively
Your budget deserves to be based on past results and future projections. If you start from a position of strength, you can bring a vision to your budget that will lead to far more sustainable success and long-term results.
Whether you need to stick to your strategy or rethink it entirely, your revenue and cost adjustments must be driven by your strategy (your long-term implications) and not tactical (more day-to-day priorities) to help your business succeed.
Start Budgeting With Board
If you feel like your budget is off track, Board is the ideal place to start.
You can gain invaluable access to your finances, projections, and the things you need to make smarter, insightful, and long-lasting decisions to future-proof your business for change.
Learn more about how Board works, and how it helps, by clicking here. Then, start your free trial today.